Brown-Forman Attacks Diageo On Tennessee Whiskey Legislation

March 14, 2014 – Call it a “Clash of the Titans” if you will, but two major distillers — and Tennessee’s two largest distillery owners — are squaring off in Nashville over the definition of “Tennessee Whiskey.” Last year, the General Assembly approved legislation defining legal standards for “Tennessee Whiskey” for the first time with a bill supported by Jack Daniel’s owner Brown-Forman. That bill essentially required whiskies to meet the same federal standards as Bourbons in order to be called a “Tennessee Whiskey”, along with requiring the use of maple charcoal filtering, and was seen as an attempt to keep moonshine producers from using the same designation for their unaged products.

This week, legislation supported by Diageo was assigned to a Tennessee Senate committee that would amend the law to allow for the use of used oak barrels and remove requirements that “Tennessee Whiskey” be matured entirely within the state of Tennessee. However, that would not change the federal requirements that whiskies be distilled and matured entirely within a single state in order to be able to call the final product a “(State name) Whiskey”. Brown-Forman executives issued a news release today blasting the amendments as a Diageo-led attack on Jack Daniel’s.

“Jack Daniel’s has made significant inroads against Scotch whisky in general and Johnnie Walker in particular in markets around the world…as evidence of that, I’ll cite that in 2013, Johnnie Walker was flat over 2012 in terms of case volume and Jack Daniel’s grew by five percent. Jack Daniel’s along with many other American whiskies are growing rapidly, often at the expense of Scotch whisky, and so Diageo’s response is to try and undermine the Tennessee Whiskey category.”

Listen to the entire interview:

Diageo owns the second-largest producer of Tennessee Whiskey, the George Dickel Distillery in Tullahoma, Tennessee. Spokesman Mike DaRe acknowledged Diageo’s support for the legislation during two telephone interviews, saying that “the law that was passed is anticompetitive, and kind of serves as a barrier to entry for smaller distillers.” In addition, DaRe said Diageo was never given a chance to state its position on the law while it was under consideration, and claimed it was passed under false pretense. In a follow-up email, DaRe said Diageo attempted to get the bill vetoed by Gov. Bill Haslam last May, but was told to come back and propose changes during this year’s legislative session. During our initial interview, DaRe said Diageo was unaware of the proposal last year as it was moving through the legislature, and (in a follow-up interview) attributed that to not having a lobbyist in Tennessee tracking alcohol-related legislation last year.

Listen to the entire interview:

DaRe denied any attempt to undermine the category, saying “our opposition to this is based on principle for the category” and that Dickel has no plans to change its production methods if the legislation is passed.

Lynch cited news reports last July that Diageo planned to move maturing whiskey stocks from the Miller’s Lane maturation facility in Louisville to Tennessee as well as the Stitzel-Weller warehouses, and suggested that Diageo might try to label some of that whiskey as “Tennessee Whiskey” if it could get the law changed (notwithstanding the federal prohibition against it). Diageo’s Bulleit Rye and George Dickel Rye brands use whiskey distilled at MGP-I in Lawrenceburg, Indiana, and the maturing stocks for that whiskey are matured in Diageo’s warehouses along with stocks used in Seagram’s 7 Crown American Whiskey.

“They called us out on this, and, you know, I think it is on principle for us about one company making something anti-competitive so that everything else has to adhere to their standard,” DaRe said.

“We’re pretty adamant about our stance here and not letting one brand determine the future of the category.”

DaRe declined to address Lynch’s accusation that the move was linked to growing sales of Jack Daniel’s compared to Diageo’s Scotch whiskies, or Lynch’s comparison of the Tennessee move to Diageo’s controversial change of Cardhu from a single malt to a “pure malt” Scotch in 2003 — which Lynch described as “screwing around with categories previously.”

The bill’s Senate sponsor, Sen. Mark Green, said in an email Sunday (March 16) that the intent is to help small-scale distillers.

“The newest amendment provides the smaller manufacturers the ability to use barrels that have had the inner core ground out exposing new wood. The goal is to keep the tradition of the whiskey touching new wood, while providing the smaller distillers the ability to lower costs and compete.”

The bill is scheduled for a Senate State Government Committee hearing on Tuesday, March 18.

Editor’s note: The bill cited by Brown-Forman (SB 2441) is listed on the General Assembly’s web site as proposing a “three strikes” license revocation for liquor license holders. Phil Lynch provided a copy of amendments to this billthat include the changes to the “Tennessee Whiskey” designation. However, the General Assembly’s web site does not presently show these changes. Sen. Green confirmed in his March 16 email that the bill has been amended with the language in the copy provided by Lynch. We are currently trying to schedule a telephone interview with Sen. Green. The entire audio interviews with both Phil Lynch and Mike DaRe are available to stream here, but DaRe’s clarification on Diageo not having a lobbyist in Nashville during last year’s session came during a follow-up interview that was recorded, but not available for streaming at the present time.